Segment arbitrage:

I just noticed something very interesting on my last trip. Typically I fly CO from BOS to IAH, and get a $500-$600 R/T 7 day advance purchase fare. However, I forgot to book a trip the other day and didn’t realize it until 5 days out. Therefore, I needed a cheap O/W BOS to IAH fare. CO wanted about $700, so that was a non-starter. USAir, on the other hand, was offering $250 O/W with a 45 minute layover in Charlotte. Not ideal, but much more cost effective, and I’ve found CLT to be a very pleasant airport not typically plagued with delays. Since CO is now Star Alliance, I was able to get the flight miles credited to CO as well, which was nice. So, when I checked my CO account, to what should my wandering eyes appear but 2 flight segment credits, as opposed to 1. Meaning, if you fly USAir multiple segments, you get multiple flight credits and could rack up a lot of them to help get you to elite status. What I am not sure of is if I booked a three segment flight, would I have gotten three credits? If so, I can imagine mileage runs on USAir to get CO elite status quickly and cheaply. Just some food for thought.

Greekonomics 103.2 – Option Value Redux

Earlier I had posted about incorrect attribution of option value to frequent flyer miles. However, I do have a good example of option value for you through the Starwood Preferred Guest program. Starwood allows you to book room awards with points, which you typically can cancel without penalty up to 24 hours beforehand. Therefore, you can hold a room with points and wait to see if you can get a cheap cash room rate up to 24 hours before your checkin time. This is essentially a free option to hold rooms with points. The only cost is that you can’t use the points holding the room. But here is where SPG helps you out again. You can hold those rooms with cash and points, meaning that you don’t need that many points to hold a room. I’ve found this to be especially helpful when I have booked a trip far in advance with points and am earning promotional free nights. I can hold the room with the points, and then contact SPG to replace the “points” room night with the “promo” room nights. I just did this at the Westin Swan in Orlando. I had originally booked 5 cash and points nights for 4000 points and $60 per night (total outlay 20,000 points and $300). However, I just earned three free nights with the current SPG promo, so I replaced those 3 nights and then my total outlay was only 2 nights at 10,000 pts per night and no cash (savings of $300). Unfortunately, the cash and points option was no longer available, as I would have preferred $120 and 8000 points. However, my alternative cost me no incremental points versus my first option, so it was definitely a winner.

Getting Value from Delta Drachmas

One common complaint I hear from frequent flyers is that they feel like Delta Skymiles have very little value. I think that I may have cracked the code on this, at least for people who need hotel stays. Delta has added a feauture where you can book hotel rooms and/or car rental with your Skymiles. Go to the Skymiles tab and pick"Use Miles" on the dropdown. Then click on "Skymiles Marketplace" on the left side of the screen. Then, select "Book a Hotel/Rent a Car" on the left side again. As an example, for a 2 night stay next week in Houston, you can get the St. Regis for 30,204 Skymiles per night, or the Westin Galleria for 18,712 Skymiles per night. The St. Regis is listing a rate of $385 ($450 with tax) and the Westin is listing $289 ($338 with tax). These prices are from SPG.com. So, we're talking about 1.5 cents per Skymile.

They seem to have hotels worldwide - I noted some interesting options in places like Seville and Cartagena, Colombia. Check it out!

Posting from 35,000 feet

I'm learning the hard way that Delta can stand for "Doesn't Ever Leave The Airport". On a replacement plane from BOS to ATL (with onboard wifi). Landing 10 min before my ATL to BHM flight departs. Wondering if the Force will be with me at ATL. The flights are at adjacent gates, so as Bill Murray said in Caddyshack - "so I got that going for me."

Rapid Rewards Winter Wonderland - some good news

Kudos to Southwest Rapid Rewards Winter Wonderland promo. Despite mention in the fine print that you have to give your RR number at the time of reservation to qualify for the bonus credits, I was credited bonus credits for 3 car rentals that I had to get retroactive credit for. Those extra credits are helpful as I race against the clock to top off my account with Amex Membership Rewards points before SWA is no longer a partner of theirs.

Greekonomics 103 - Option Value

Many finance types who hoard their miles always talk about the "option value" pf having their miles, and in a rudimentary sense, this is the case. Having the miles gives you the option to either purchase a ticket or use miles for the ticket. However, what they typcially overlook is that in general, this option value is declining over time. The reason for this is based on a fundamental difference in how stock options are valued versus how I might value the miles in my account. Back in the 1970s, two prominent economists (Fischer Black and Myron Scholes) published an acedemic paper on how options are priced in the securities markets. In the interest of not having your eyes glaze over with literal "Greekonomics" in the form of the Greek letters used in their formula, suffice it to say that their option pricing model was based on a number of assumptions, one of which is that the price of the underlying security "follows a Geometric Brownian Motion with constant drift and volatility". In layman's terms, this means that pricing of the underlying security will be fairly random. And THERE is where the mileage option gurus have made their error, since we all know that when it comes to mileage awards, the only direction in terms of mileage needed for an award is up - meaning that the value of your miles is constantly drifting DOWN. This is not to say that you should burn through miles the instant you get them, but rather to be thoughtful and to occasionally follow the less scientific approach espoused by the phrase "smoke 'em if you got 'em."

NB: I don't espouse to be an expert on option pricing or statistical modeling using Geometric Brownian Motion. There are plenty of resources on the web that can do this topic justice. However, I'd be remiss if I didn't give a tip of the Greekquentflyer hat to Myron Scholes, for whom the aforementioned option pricing model is named and who won, with Robert Merton, the Nobel Prize in Economics in 1997. I had the privilege of working with Myron in the late 1980s, and his influence on my career trajectory was immeasurable.

Greekonomics 102 - Lunar Real Estate

I used to have a friend who worked for a private company. Part of his compensation was in what the company called "shadow stock." He used to joke that they called it this because "only The Shadow knows how much it's worth." (ok, those of you born after the baby boom have no idea what this references). Anyway, he went on to call these shares "lunar real estate" because he really couldn't cash them in, and they were of questionable value.

All of us have mileage in certain programs that we are tempted to call lunar real estate. And I am here to tell you that with few exceptions, that's not the case. Unless you are talking about a few hundred miles in some strange overseas program denominated in cubits rather than miles, you can probably squeeze some value out of them. You just need to know how.

What I've found is that magazine redemption often fits the bill in these cases. The reason is that you can usually get pretty good value. I know someone who hates his huge Delta Skymiles balance because they require so many miles for his trips to Asia. However, Delta offers 51 issues (a year) of the Economist for 3200 miles and 190 issues (6 months) of the Wall Street Journal for 2800 miles. The Journal costs $120 per year if you subscribe and the Economist is $127 per year. 3200 miles for $127 of value is about 4 cents per mile. If you were 1) planning on subscribing anyway and 2) your company won't reimburse you - as many are now cutting back, this is a pretty good deal. Additionally, you can give these out as gifts to others for things like graduations, birthdays, etc.

Delta also offers hotel night redemption for miles, and I will review that feature in a later post. Based on my preliminary review, it looks promising.